Editor's Plate: The Food and Beverage Industry Needs to Return to Real Growth

Increase sales, not just profits, in 2017.

Every year in the food and beverage industry is like a ride at Disneyland: filled with some thrills, some scary moments, maybe even a horror or two. Yet, when it’s over, you safely get off, maybe a little shaky-legged, and get in line for the next ride.

Well, most of you, at least, get off safely and move on. Despite some high-profile stories of amusement park fatalities, I suspect the attrition rate is much higher in the food and beverage industry.

Sure, there have been layoffs, as there are with any business. Most, like General Mills, are the result of restructuring, of multi-year cost-reduction projects with names like Project Catalyst and Project K. Cost-control is one thing, but growth is another. In this month’s magazine, we try to cover the issues the industry will deal with in this new year, but the biggest one will be finding growth. Not just profits, growth. Expanding sales. Because the past two years have been tough on the top line.

Food and beverage companies experienced declining sales and profits in 2014 (versus their 2013 performance). Then, in 2015, they cut, cut, cut. So while their 2015 sales went down, their profits improved. That was the story from one CEO and CFO after another at last February’s Consumer Analysts Group of New York meeting. But you can’t keep that up for long. As their books closed on 2016, I didn’t hear anyone crowing about sales growth. So as the 2016 numbers start coming in over the next few months, I wonder how they dealt with a third straight year of sales declines on top of serious cost-cutting over the two previous years.

Emerging markets are no longer the pots of gold, not with flat growth in many and political and/or financial instability in others.

Moody’s Investors Service issued a 2017 perspective in December that had a generally positive outlook for packaged foods and a stable outlook for beverages. Among its notes: “Restructuring costs give way to cash flow benefits [but] most major programs [are] near completion. Maintaining sales volume will be key to retaining efficiency gains.” The ratings firm predicts this year will be one of “targeted innovation,” where “product innovation gives way to renovation, including upgraded packaging, ingredients, flavors and labeling.”

Renovation is a necessary thing ... if you want to continue living in the same old dump. If you want to move up, you build new. So throw some money at your R&D dept. this year and see what they come up with. You might be delighted.

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Comments

Submitted by David Rowley on Tue, 01/24/2017 - 12:41

R&D departments are frequently given marching orders by Marketing, in large companies. We subsequenly must turn to small business/entrepreneurs as sources of innovation, which are, in turn, bought out by larger firms, once proof of concept is established.
Another challenge might be the decades-long reduction of average household member counts in developed countries.

Excellent piece Dave. At a time when the majority of growth is coming from new products, innovation is facing incredible challenges. More and more companies are turning to their supply chains and trusted partners, including key contract manufacturers, for fresh ideas, new solutions, co-innovation, and improve speed to market. Gone are the days of "not invented here". This is good for the industry, and most of all for consumers. Thank you for being a steward of innovation with the work you do.